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What if a week long trip from Hawai’i to Los Angeles cost less than $100? Calculated in carbon offsets, it does. Carbon offset dollars, essentially a pay-to-pollute ante, are the personal calculation used to go ‘carbon neutral’ or maintain the balance between producing and using carbon. The L.A. trip’s $100 in carbon offsets goes to fund renewable energy sources, such as wind or solar power.

However, carbon offsets don’t necessarily change the consumption habits that created the carbon emissions in the first place. Recently compared to papal indulgences–the practice of paying for sin that in the Middle Ages came to mean buying one’s way into heaven–carbon offsets may turn out to represent a feel-good way to commit carbon sins. Plant a tree! Enjoy your SUV!

The modern-day replacement for religion–consumerism–may need such a carbon indulgence because today’s reality of living carbon neutral is rather austere: few cars, limited electricity, no oil, no air travel. At least not until renewable energy is more price competitive and more available.

For now, at $15.25 per ton of CO2 emitted, it’s easier to pay.

But the real goal is to increase conservation and reduce fossil fuel consumption. Hawai’i, with its oil dependency and a susceptibility to threats like the global warming-related rise of sea levels may have more incentive than most.

Reduce the carbon footprint

Great Britain recently released the Stern Review, a report on the economics of climate change that urged immediate global action to reduce greenhouse gases (GHG) and the threat of global warming. The report noted that ’strong, deliberate policy action is required to motivate’ reduction in GHG emissions. CO2 emissions make up 85 percent of GHG in both the United States and Great Britain. The U.S. is by far the most egregious spewer of CO2 both overall (25 percent globally) and per capita; Britain contributes only 2 percent.

Hawai’i has a fairly tiny carbon footprint as far as global emissions go, but the state’s CO2 emissions are expected to rise at least 5 percent by 2020. Currently, Hawai’i produces about 25 million metric tons (Mtons) of CO2 emissions per year, or only 0.3 percent of the 7,704 Mtons produced in the United States annually. But with an over 90 percent dependency on fossil fuel, Hawai’i is the most oil-dependent state in the nation.

As part of the Hawai’i Energy Strategy (HES) 2007, an initiative begun in 1992 to better understand Hawai’i’s energy situation, the Department of Business, Economic Development and Tourism (DBEDT) and the Rocky Mountain Institute (RMI), a Colorado-based non-profit, are researching how to achieve the state’s legislative mandate of 20 percent renewable energy by 2020.

RMI is modeling three future scenarios based on tracking fuel prices from today through 2025. At a recent stakeholder presentation, the model showed that only when fuel prices are extremely high will the state reduce carbon emissions–to 24 Mtons by 2025. Under the other two scenarios, carbon emissions increase to 30 Mtons.

In other words, simply having affordable renewable energy won’t necessarily solve the problem–strong policy is also needed. ‘Price response alone won’t be sufficient to create wholesale change,’ says Joel Swisher, managing director of RMI. ‘Hawai’i is a price taker. We don’t move markets like California, so we need to tailor local decision making to what’s out there and respond cleverly to policies at a federal and global level.’

Most economists argue for a ‘carbon tax,’ which effectively raises the price of oil and its fellow fossil fuel polluters, such as coal, to reflect the cost of their carbon emissions. Voters in Boulder, Colo., recently approved a carbon tax. But to most elected officials, a carbon tax, as Swisher says, ‘is not particularly politically palatable.’

RMI presented a policy analysis to introduce various policy tools that reduce oil consumption and potentially go beyond meeting the renewable energy targets. Based on RMI’s three scenarios, the state actually comes close to achieving or exceeding its renewable standards in all cases, but oil consumption still goes up.

Oil dependence does decline, down from 90 percent to around 80 percent, but absolute oil consumption actually increases from 56 million barrels of oil in 2005 to as much as 69 million barrels in 2025.

Currently, fuel at the gas pump is taxed, but oil used in utilities for electricity is not. Almost 30 percent of the oil Hawai’i imports goes to generating electricity. The state’s two utility companies–Hawaiian Electric Company (HECO) with its subsidiaries and Kaua’i Island Utility Co-op (KIUC)–are actively working to meet the 20 percent by 2020 mandate on the renewable energy portfolio standards.

However, policy will have to play a role to further consumer conservation and efficiency investments. Consumers need more reason to conserve and usually that means more rebates and more direct monetary savings from energy efficiency.

‘Before more aggressive [consumer] efficiency programs will be possible, utilities will need to be properly incented to do more efficiency [programs],’ noted Kitty Wang, a principal at RMI, in an e-mail.

Three proposals are currently before the Public Utilities Commission (PUC): a decoupling proposal, which removes the conflict-of-interest a pro-profit utility has between earning profits from selling energy vs. reducing customer use of that energy by decoupling rates from electricity generation; stakeholder incentives, which create incentives based on how well a utility reduces energy consumption; and third-party administration, which would transfer partial or entire energy efficiency program administration to a party outside the utility to manage renewable energy and efficiency programs without the potential conflict-of-interest.

Karl Stahlkopf, HECO’s senior vice president for energy solutions and president of its Renewable Hawai’i subsidiary, says the company has an incentive to encourage consumer conservation and energy efficiency even without PUC regulation because of avoided costs, which is the amount of money saved by not having to generate an extra kilowatt hour.

Avoided costs may turn out to be the silver lining of Hawai’i’s high electricity prices. In 2004, Hawai’i had the highest average price of electricity at $15.70 cents per kilowatt hour, almost $2 more than second-ranked New York. Those high prices make renewable energy more competitive with fossil fuel, which means HECO can breakeven on energy efficiency rebates more easily than a state with lower electricity costs.

Swisher suggests a combination of decoupling and stakeholder incentives would be the most effective for Hawai’i’s utility market. For Hawai’i consumers, though, energy efficiency is a ‘tougher nut to crack.’

A classic conundrum

Energy use is usually broken down by sector, mainly industrial, commercial and residential. The residential sector is responsible for 25 percent of global energy demand. If households simply implemented current technologies, such as compact fluorescent lighting and high-efficiency water heating, the growth in that demand could go down from 1.4 percent annually to 0.5 percent per year, according to a recent study published by the McKinsey Global Institute (MGI), a research arm of the consulting group McKinsey & Company.

Hawai’i already has state tax credits in place for solar and wind power that supplement federal tax incentives, arguably a clever response to being a price taker because the state piggybacks on subsidies already in place. For example, when purchasing a solar water heater, a consumer receives a tax credit from the federal government plus a tax credit from the state to reduce the purchase and installation costs.

However, as RMI’s Wang noted, initial investment costs for renewable energy, such as solar water heaters, and energy efficient technologies, such as those used in new appliances, continue to be a big barrier to consumer purchases, even when incentives are available.

To make matters more complicated, consumers expect a quicker payback than most investors. According to the MGI study, conventional energy-saving technologies tend to have a 10 percent Internal Rate of Return (IRR)–in layman’s terms, the time it takes to recoup the money spent. Consumers, however, demand a 30 percent IRR. Essentially, a consumer-oriented tax credit has to payback within three years or less for a consumer to value it.

‘Consumers discount future [energy] efficiency strongly,’ notes Swisher. ‘An almost immediate payback is required.’

Hawai’i has yet another hurdle. Most of the consumer-oriented tax incentives are directed at owners and almost 50 percent of Hawai’i’s residents are renters.

‘It’s the classic conundrum of mixed incentives,’ Swisher says. ‘Renters have no incentive to upgrade equipment, and the owner has no incentive to make the renter more energy efficient.’

To this end, RMI’s policy analysis considered consumer incentives that had an immediate and noticeable pay-off, right at the register - feebates.

However, with an economy dependent on tourism, reducing emissions is not necessarily under the state’s or an individual’s control as air transportation accounts for more than 35 percent of the state’s oil imports and most tourists are not on vacation to conserve.

Better than nothing

So maybe carbon offsets are less of an indulgence than a necessity for those interested in going carbon neutral in the short term.

‘Planes will not run on alternative fuels any time soon, and Hawai’i has a ways to go toward offering an attractive public transit system for everyone to move around the islands that also reduces emissions,’ Wang added.

For now, environmentally conscious travelers and residents may just have to pay the carbon piper. They can use a ‘carbon calculator’ at [www.terrafirma.com] or [www.carbonoffsets.com] to go carbon neutral on vacation or simply pay $256.51 to go neutral on the average person’s annual 16.82 tons of CO2.

Based on Britain’s Stern Review estimates, the overall costs and risks of climate change will equal at least 5 percent of global gross domestic product per year. In 2005, global GDP was an estimated $60.6 trillion. Five percent of that is over $3 trillion.

Perhaps $256 is a small price to pay.

Web links for carbon offsets: [www.terrapass.com] , [ww.carbonoffsets.com].